Personal Loan

Personal Loan Part Prepayment Charges and Foreclosure Fees


You might decide to pay out the outstanding principal in full or in part to pay off your personal loan a little bit sooner. The latter is known as a part prepayment because you only pay a portion of the loan balance. Personal loan foreclosure fees will be assessed if the debt is fully repaid. On the other side, if you only pay a portion of your personal loan, you will be charged prepayment penalties.

Personal Loan Prepayment Procedure

Now that you have a better understanding of personal loan prepayment, let’s examine the general process that must be followed. 

  • If you’ve decided to foreclose on your debt, take the foreclosure fees into account. If you are making a partial prepayment, take a similar look at the prepayment penalty. For this, you might make use of a personal loan prepayment calculator. 
  • Next, speak with your bank’s nearest branch to go over the prepayment. You can submit a request online as well. 
  • Make sure you have access to the necessary documentation. 
  • Once your request has been received, a representative may get in touch with you to discuss any foreclosure fees or penalties and take payment.

Benefits of Personal Loan Prepayment

Faster debt relief 

It’s time to pay back the loan you took out to cover a few important costs. Your personal loan, however, could potentially result in severe financial trouble if it is not managed carefully. Your monthly savings are also reduced by the EMIs on personal loans. For this reason, if you have any additional money coming in, it is frequently advised that you prepay your personal loan in full. You might have to pay a small prepayment charge when you pay off your loan early. However, the prepayment fee is undoubtedly a minor thing to pay in that regard, given that prepayment might help you become debt-free well before the conclusion of the loan payback term. Not to mention, you won’t have to worry about your money being depleted by loan EMIs. 

Prepayment reduces the amount of interest paid 

The lock-in term is one of the most crucial factors to think about when it comes to loan prepayment. This refers to the time frame in which the lender forbids the borrower from making any prepayments, in whole or in part, towards the loan balance. Try prepaying your debt, either totally or partially, after the lock-in period is over and you have some spare money. You will save a lot of money by doing this and also end up avoiding paying interest on the amount you borrowed. Remember the prepayment fee that comes with loan prepayments; it would still be a good deal to pay it, considering the amount of loan interest you would avoid paying.

Partially prepaying your debts can reduce them

The topic of partial prepayment on a personal loan is discussed here in the context of the previous points. All it can do is make your debt load lighter. You lessen your debt load when you partially prepay the amount of your outstanding loan. This also reduces the amount of interest that is payable on the entire amount that is still owed. If you do want to prepay your debt, aim to do so in the first few years of the loan term. 

Improve your credit score 

Your debt load is eliminated or reduced all at once when you prepay your loan, either entirely or partially. Outstanding loans have a direct impact on your credit score, so this helps to raise it. Your credit score automatically increases when the outstanding loan balance is lowered or paid off in full with partial or full prepayment, increasing your chances of obtaining another loan.

Personal loan foreclosure charges

As we just explained, you might need to get ready for a related charge, whether you are partially prepaying your loan or foreclosing it. When looking at it from the bank’s perspective, the cost of borrowing is higher than the cost of lending. After lending you the money, the financial institution makes money off the difference between the two sums for the duration of the loan. There is a possible loss of income for them if you prepay the debt or foreclose on it. To make up for it, they impose a price or penalty on you, which is known as foreclosure charges.

So, should you make a prepayment on your personal loan? The interest rate, the type of loan, the duration, and the prepayment fees are just a few of the variables that will affect the answer to this question. Financial institutions that have minimal prepayment costs should not be taken advantage of. Always choose the one that is most inexpensive by comparing your interest rate to the prepayment penalties on the personal loan.

Prepayment Fees Charged By Banks

When compared to the cost of lending, a bank’s cost of borrowing money is lower. The bank retains the difference in the amount after lending the money for the duration of the loan. The rate of interest that the bank would normally earn during the additional time decreases if the consumer chooses prepayment. Some banks impose prepayment fees to make up for the loss of prospective revenue. 

Bank prepayment fees differ significantly from one bank to another. Depending on the bank a customer borrows from, there may be a variety of restrictions, but generally speaking, the interest rate is between 4% and 5% on the outstanding loan amount. Additionally, prepayment penalties can vary, based on the loan term that has been fulfilled. Some banks may offer no prepayment fees after 3 years, while others may offer cheaper rates after a set amount of time.

Wrapping Up

Existing borrowers may find it appealing to prepay their personal loans because it lessens their overall repayment load and interest charges. Prepayment fees, if the lender levies them, and a decrease in liquidity, however, may act as a disadvantage. By switching their personal loan to lenders with cheaper personal loan interest rates, borrowers with limited liquidity can lessen their repayment burden and interest expense. For more articles on personal loan prepayment, personal loan foreclosure charges, and foreclosure fees, log onto Piramal Finance.